Category Archives: institutional investor

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SEC to Make Criteria for Accredited Investors More Inclusive

  • SEC definition of an accredited investor to include knowledge-based criteria rather than just money-based criteria

The United States Securities and Exchange Commission (SEC) has proposed to change the definition of an accredited investor to include anyone with professional knowledge, experience, or certifications in the financial sector.

Essentially, an individual can now become an accredited investor based on their level of financial intelligence, unlike the current definition of an accredited investor which is based on money alone, requiring an individual to have USD 1 million of net worth and USD 200,000 of yearly income to become accredited.

The current money-based definition of an accredited investor is essentially tantamount to financial discrimination, since even the most brilliant financial genius cannot participate in private security offerings, private equity funds, and hedge funds if they do not have the required amount of money to gain accreditation. This actually makes it even harder for people who are not accredited to ever gain enough money to become accredited, since their opportunities are limited by the law.

Even in the crypto space there are products which are only available to accredited investors including the Grayscale Bitcoin Trust and the Grayscale Ethereum Trust, Bitwise’s Private Index Fund, and Galaxy Digital’s Bitcoin Funds.

It may take several months for this proposed definition change to become law, but when it does happen institutional investment products in the crypto space will become available to a wider spectrum of United States residents.

 

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Yale Invests Portion of $30 Billion Endowment in Crypto Hedge Funds

The crypto space has been waiting for institutional investors to enter the market and now, confirmation has come that at least one major institutional investor has jumped into the crypto market. Yale University has the second largest endowment in the United States at USD 30 billion, just behind Harvard’s USD 36 billion endowment. The Yale endowment has invested an undisclosed sum of money into crypto hedge funds run by Paradigm and Andreessen Horowitz.

Yale’s fund is managed by David Swensen, who has a reputation for being a pioneer in institutional investment. Other university’s endowment managers have been watching the movements of David Swensen for decades and have been trying to copy his strategies. Over the last 20 years, Yale’s endowment has seen an 11.8% return per year.

A survey conducted by NEPC in February 2018 indicated that 96% of endowments and foundations don’t invest in crypto. However, this could change now that Swensen has begun to invest Yale’s endowment into crypto, potentially unlocking a fraction of the USD 550 billion of endowments in the United States into the crypto space. To put this in perspective, Bitcoin’s market cap is only USD 114 billion as of 5 October 2018, with the total crypto market cap being USD 219 billion. Therefore, if Yale’s endowment finds success investing in crypto, it could unleash a relatively large amount of capital into the crypto space in the future.

The specific crypto hedge fund Yale’s endowment invested in is Paradigm, a USD 400 million crypto hedge fund started by Coinbase co-founder Fred Ehrsam, former Sequoia Capital Partner Matt Huang, and former Pantera Capital employee Charles Noyes. Also, Yale’s endowment invested in the USD 300 million crypto hedge fund started by Andreessen Horowitz.

Although the exact amount that Yale’s endowment investment in crypto is unknown, it is known that 60% of the endowment will be put into alternative investments in 2019, which includes Venture Capital, Hedge Funds, and leveraged buyouts. Also, a previous study by Yale University found that 6% of investment portfolios should be invested in Bitcoin.

 

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